Investment guru Jeffrey Gundlach expects long-term interest rates to keep rising, which could threaten the nation’s housing market at a time when the Trump administration’s tax cuts have created a “Miracle-Gro” economy.
Gundlach, the Amherst native and Albright-Knox benefactor who is chief executive officer of DoubleLine Capital in Los Angeles, outlined his views on the economy and the financial markets Tuesday during a talk to students at Canisius College.
Gundlach, who manages $123 billion and has donated $52.5 million to the Albright-Knox expansion, warned that rising interest rates could put the squeeze on the housing market as rising mortgage rates make homes even more unaffordable and on the federal government, which will pay billions more in interest on the swelling national debt.
“Don’t believe it when you hear on CNBC that a 2 percentage point rise in interest rates is minor because rates are still low,” Gundlach said.
“It matters a lot,” he said. “Rates could be a big problem for stocks if they continue to rise.”
The Trump administration’s tax cuts, which slashed the tax rate for corporations from 35 percent to 21 percent, added a powerful stimulus to the economy at a time when it already was growing moderately, Gundlach said. That kind of stimulus usually is only used to help pull the economy out of a recession.
“We sprayed Miracle-Gro on it at a very strange time,” he said.
Gundlach said he expects long-term interest rates to keep rising, especially now that the yield on 30-year Treasury bonds has topped 3.25 percent consistently over the past week. If Treasury yields rise by 2 percentage points, it could add $140 billion to the interest the federal government pays on the national debt.
While Gundlach said the index of leading economic indicators isn’t warning of a recession anytime soon, he noted that the U.S. stock market has been rising since May, while other global markets have been declining — potentially the result of the Trump administration’s tariffs and the duties imposed by other nations in response, along with the stronger U.S. dollar.
But the strength in the U.S. stock market is especially narrow, Gundlach warned, powered mainly by big gains in two technology stocks, Amazon and Apple Inc.
“Narrower and narrower stock markets are signalling problems. There are two stocks that are driving everything and that’s kind of dangerous,” he said. “I wouldn’t get near Amazon or Apple with a large pole.”
Gundlach also said he’s prepared to donate more to the Albright-Knox expansion, but he hopes others — including New York State — will step up as well to turn the art gallery into a powerful regional attraction.
“I’m probably going to have to give more because the scope of the campaign is changing,” he said. “I’m hoping New York state will show up at the party. … The Buffalo Billion? I mean, give us $50 million.”